Article

Subletting: The Sequal, Choosing What To Outsource

Was it just me, or did it seem like every movie that came out this Summer was a sequel? Numerous trilogies ended this summer: “Spider-Man 3”, “Shrek the Third”, “Pirates of the Caribbean: At World’s End” and “The Bourne Ultimatum”. The sequel “Fantastic Four: Rise of the Silver Surfer” dropped, and heck, they even dug up ol’ Bruce Willis for another “Die Hard” movie. Well, I’ll defer to Hollywood’s “genius”, and follow their lead by piggybacking on the theme of last month’s article: subletting.

As a quick refresher, the basic premise of that article was, unless dealers have a built-in advantage such as their knowledge or facilities, in many cases they may be better off subletting areas that are peripheral to their business. Although it may not be the cheapest or most efficient solution, it will allow the dealer to really dial-in core business and as a result increase ROI.

In the last issue, I focused primarily on the pros and cons of subletting mechanical repairs and concluded that unless you have an extensive service background, or a facility that is perfectly set up to operate, you might be wise to sublet the repairs to allow your team to focus on maximizing the sales and finance sides of your operation. Of course, in order to make that approach work, a strong manager needs to be directly involved in overseeing the entire process, and a network of loyal, trusted shops in the area (remember, you will probably be their largest customer by far) is an absolute must.

However, there are a few other areas in Buy Here Pay Here (BHPH) that you might want to consider subletting. One area is that dreaded “R” word: repossessions. Now, I suppose if you have your own tow truck (and have an adventurous spirit), it might be more economical for you to “hook” your own repos, but for the majority of us, the fact that it is easier, cleaner, safer, and oftentimes faster to sublet repos outweighs any additional expenses.

A couple words of caution here, though, as dealers can be held responsible for the actions of their repo company, even if they are independent contractors. Always check with a lawyer who is knowledgeable about our industry and about the laws of your state. Also, be fussy in choosing who recovers your repos. The old adage, “You get what you pay for” is very true in this instance. Make sure they are licensed, insured and bonded as a repossession company—not just as a towing company. Another good tip is to get your name added as a named insured on the repo company’s policy, so you will be notified if they allow the policy to lapse.

If you do decide to do your own repossessions, even occasionally, it is important to have policies and procedures in place, so all regulations are followed and your company is protected. You need to have a plan as to who is responsible for cleaning out the contents of the vehicle, where the personal items will be stored, how long you need to keep them, whether you need a condition report completed, etc. It would be best to have at least two of your employees do this together and sign-off on a written, itemized list, so the customer has fewer grounds to complain that any belongings were taken or damaged.

Recoveries are also another area that might be worthwhile subletting. Depending on your philosophy for chasing deficiencies after repossession, as well as the capacity of your collections department, you might generate more net revenue by letting experts in that field handle those accounts. There are firms specializing in handling after-charge-off recoveries, and there are even companies that will buy the charged-off contracts from you. Although they only pay pennies on the dollar typically, it may be more than you would be able to generate in-house after you deduct all the expenses associated with doing so. Again, choose wisely and check references before choosing a company.

Another area you can sublet in any operation, not just BHPH, is training. By now, you probably realize that just because we sublet an area doesn’t mean it’s less important. On the contrary, ongoing training is essential to long-term success. While we could probably all develop a training system to show our people how we expect things done, there are several well-respected trainers in our industry who have the material and the presentation all prepared. As a matter of fact, you can even get quality training modules over the Internet now. One resource for independent dealers is www.NIADA.tv, Don’t reinvent the wheel; tap into the excellent training resources out there already.

Finally, we even have the option to sublet the hiring of employees. There are companies out there that will recruit candidates, conduct interviews, administer testing and recommend qualified applicants to you based on the profiles they develop through experience and input from dealers. It isn’t a cheap process, but again, there is a great deal of value in freeing up the time it would take your staff to perform the duties involved in hiring new employees (in addition to the “hidden” expense we all know is involved anytime you have turnover issues).

So, I encourage you to focus on the areas you are best at in your operation and leave the rest to trusted experts, even if it means tapping resources outside your company. It might make your expense statement a little higher, but the tradeoff should be the added net profit generated when you and your staff are able to dial in on the most profitable aspects of your business. Doing so will soon generate a financial statement you will be proud to see many sequels of.